Perplexing Tranquility? Bitcoin’s Implied Volatility Hits Lowest Since October 2020

There is an uncanny sense of calm in the bitcoin (BTC) market despite lingering FTX contagion fears and macroeconomic uncertainty. Analysts are scrambling to explain the perplexing tranquility.

Bitcoin’s annualized seven-day implied volatility, or the options market’s forecast of a likely movement in the underlying asset, has declined to a two-year low of 38.2%, according to data source Amberdata.

The metric – often equated with the degree of uncertainty or fear – peaked at 145% on Nov. 9 and has been falling since, even as the FTX contagion spreads and experts fear a wave of miner bankruptcies.

To Markus Thielen, head of research and strategy at Matrixport, the declining volatility is not surprising.

«Volatility expectations will continue to drop. Lower volatility is one of my favorite trades for 2023,» Thielen told CoinDesk. «The macro outlook is extremely constructive, with inflation falling like a rock and the recent decline in oil making the Ukraine war less relevant.»

Institutional interest has dwindled, as evidenced by the decline in active bitcoin futures contracts on the Chicago Mercantile Exchange (CME). The so-called futures open interest has dropped to 69,000 contracts, the lowest since October.

Institutional interest has declined, adding to the volatility lull in the crypto market. (Arcane Research)

The share of non-exchange-traded funds (ETFs) in the open interest has hit an all-time low of nearly 41%.

«In the light of muted activity and expected slow times ahead, it’s likely that volatility will continue to compress, which in turn is reflected in options,» Lunde said.

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